Impact of contractor's optimized financing cost on project bid price

The financing cost depends on the incoming and outgoing cash flow throughout the project, and can differ greatly from project to project. This study proposes a model that calculates the expected financing cost based on the cash flow forecast. This approach is more realistic than assuming an approximate percentage of the total cost. The proposed model calculates the bid price using an optimized financing cost that is obtained by selecting an optimum combination of available financing alternatives offered by different lenders. The proposed model minimizes financing cost, reduces the bid price, enhances the competitiveness of the bidder, increases the contractor`s negotiating power with a lender by providing an optimum financing schedule, and eliminates the risk of financing surprises during construction. This study investigates the impact of different financing considerations on bid price in three cases to prove the effectiveness of the proposed model.